The disruption of venture capital

One of the reasons I moved to Forward was to be in the vanguard of change for early stage company finance. Union Square Ventures partner Albert Wenger wrote a post yesterday about the disruption of venture capital which lists the changes afoot:

  1. Information about VCs on the internet. In the mid-1990s VCs began to have websites, but there were no good resources for entrepreneurs to find out about the venture capital process and learn about individual firms or partners. Today there is much more transparency. Many funds publish their investment theses (ours will come soon) and we have endless VC and entrepreneur blogs as well as resources like TheFunded.
  2. Online access to VCs – over the last 5 years or so it has become possible to build relationships with VCs over the internet. Before that offline networking was the only way.
  3. Angel investing has grown – wealth creation in the internet bubble massively increased the number of angel investors, particularly outside Silicon Valley.
  4. Startup costs have fallen – open source software and cloud computing have driven startup costs down by a factor of 10
  5. Crowdfunding is now realAngel List is the big player here, but other platforms including Seedrs in the UK are also getting traction (my old firm DFJ has an investment in Seedrs)
  6. Data driven investing – there is an emerging trend for investors to make heavy use of data. VCs are developing in-house tracking solutions and we now have third party services like Mattermark.

At Forward we can benefit from all of these trends. Most obviously we are an early stage investor and love working with low cost startups at their early stages, but we are also very visible online and transparent, and work a lot with angels. Going forward one of the interesting opportunities in front of us is finding a way for our startups to systematically leverage crowdfunding.

 

  • Richard Kelly

    It seems Forward has a lot of advantages over the typical ‘classical’ VC firm. You share similarities of incubators. You work with Angels. And your transparent enough to almost be crystal clear – no hidden surprises. Forward itself is disruption to venture capital.

    I think Startup costs could be dramatically lower if a few factors were managed in-house via the VC/investor network – software, hardware and most notably the team, are the factors that make up 90% of the total cost of a Startup. There’s a few very well-known companies/firms which handle this approximated 90%: Betaworks, Science Inc, and even Google Campus, are stepping into this field. It’s as if the mind of the Founder(s) are exploited to these companies/firms and given the opportunity to make it real.

    There’s a huge industry out there with so few tapping into it.

    Just think though: How much does a Startup REALLY cost and how much of this could be handled via Forward? 90% sounds a lot. But it’s possible. In fact, it exists. Betaworks and Science Inc are evidence of this existence (something you already know Nic via previous post).

    A possible opportunity? These companies/firms aren’t in the UK. However, Forward is.

    It is possible for a Startup to setup with £150,000. But an impact costs more. About 90% more. It’s much more likely a Startup would survive and flourish if it made an impact. This impact is possible with less than £150,000 if the other 90% could be handled internally. What we have then is disruption to, not only venture capital, but to the cost of impact as well.

    Forward is enough to make me think hard about the alternative to Angel investment. The measurement of impact is used to make this decision. Angels come with their own impact. They are quintessentially their own brand. How much impact has Forward got?

    When it comes down to investment, money is secondary. Knowing what I can get from the investment means much more than how much money is being raised. Being picky is important because you can raise many millions, yet you don’t make any disruption at all. It’s all down to how much execution you have and how much impact you make. Money doesn’t create impact. A great team, product and strategy does – all things investors SHOULD be looking for.

    Evidence? A famous social networking site was created in a university dorm room back in 2004. It cost next to nothing to build. It created such an impact that approximately 15% of the World, today, use this platform daily. We all know it’s worth billions and surely you all know which social network I’m on about. My main point being is that billions can come from next to nothing. Making this opportunity easier is best for both parties. The entrepreneur can build their vision and the investor gets to thrive from the profits. Or if it all goes up in smoke, the investor has saved itself 90%.

    There’s no such thing as a win-win situation. But it’d be nice to have something very similar 🙂